Global concerns curb SMEs’ spending plans

UK small and medium-sized manufacturers saw increase in output in the three months to July, although optimism among SMEs fell at fastest rate since January 2009, according to the Confederation of British Industry (CBI).

David Sapsted

3 August 2016

The survey of 472 firms found that total new orders and new domestic orders remained relatively stable over the quarter "although firms expect these to fall over the next three months, highlighting the need for action to raise confidence".SMEs had scaled back investment intentions in buildings, plant and machinery although, looking at the coming 12 months, the manufacturers said they intended to increase spending on product innovation and training for staff to help bridge the UK’s skills gap. The survey also found a rise in employment over the quarter and that companies expected hiring to remain stable over the current quarter. And while there was overall doubts about the future direction of the economy, optimism over export prospects for the year ahead rose slightly, with SMEs reporting the first improvement in competitiveness in EU and non-EU markets since 2013.The CBI said: "Although the volume of export orders fell again on the previous quarter – SMEs anticipate that they will rise in the coming quarter, after no increase since April 2014. However, the proportion of firms reporting political or economic conditions abroad as a factor likely to limit export orders over the next quarter climbed to a record high."

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Rain Newton-Smith, CBI director for economics, commented: “The UK’s SME manufacturers reported higher production, more staff hired and now expect to sell more of their world-class goods overseas over the next quarter, with a weaker sterling having a hand in this. But overall they do feel less optimistic and are scaling back some investment plans in machinery and plants. Naturally, much of the concern is related to uncertainty and business wants to now see the new government deliver a clear plan and timetable for the EU negotiations ahead, while cracking on with immediate domestic priorities, including a decision on new aviation capacity in the South East, which will help the UK’s SME manufacturers to reach new markets in the future.”Key findings of the survey included:

Eight per cent of SME expressed optimism over the future compared to 53 per cent who were less optimistic than previously.

Some 27 per cent reported an increase in their volume of output while a fifth said it was down. Slightly more companies said their domestic orders were up compared with those who said they were down.

The proportion of SME manufacturers citing concerns about political and economic conditions abroad as likely to limit export orders, was at a survey record high (49 per cent).

Plans for capital spending in the year ahead fell for plant, buildings and machinery to their lowest levels since 2009.

Meanwhile, investment in product and process innovation was expected to rise at a moderate pace, along with spending on training.